Kaye clients hail decision on financier

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Thousands of investors who paid huge amounts for Henry Kaye property seminars won a major victory yesterday with a legal decision against a finance group that provided tens of millions of dollars in loans to help keep Kaye's empire afloat.

The decision, in a case that Consumer Affairs Victoria brought against the New Zealand-owned company, Australian Finance Direct, has been hailed by lawyers and advocates as a significant victory for consumers and CAV.

Consumer Affairs brought four charges against AFD in the Victorian Civil and Administrative Tribunal on behalf of more than 2300 Australian investors.

VCAT deputy president, Cate McKenzie ruled yesterday that AFD had breached the Uniform Consumer Credit Code four times in contracts by failing to disclose the real interest rate charged on loans provided to Henry Kaye customers.

Consumer Affairs Minister John Lenders last night said the action against AFD had been taken after complaints that people were being "ripped off..." and "exploited by property investment spruikers and associated finance companies".

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"Australian Finance Direct thought they could take advantage of ordinary people who were just trying to get some advice so they could get ahead and secure a comfortable future," said Mr Lenders.

The investors cited in the case had each borrowed between $4995 and $16,757 from AFD, a subsidiary of the Hanover Group, for Kaye seminars. The money was paid by AFD to Kaye's company, National Investment Institute, which ran the programs.

But Consumer Affairs alleged the scheme breached consumer law and that there had been a separate and secret deal between AFD and Kaye's NII.

Under this deal, AFD allegedly did not hand over all the money borrowed by the individual investors to NII. It held back some of the borrowed money.

This was referred to by CAV as a "hold-back fee" that allegedly ran from 10 per cent of the money borrowed by the investors but in some cases was up to 50 per cent of the loan.

CAV described the "hold-back fee" as a percentage of the loan that AFD retained to supplement the interest charged but not paid to NII.

CAV also said AFD breached the credit code by charging and not disclosing the hold-back fee to customers.

AFD faces fines of up to $500,000 on each of the four counts, but the tribunal has postponed a decision on a civil penalty until another hearing is completed.

The decision was welcomed by consumer advocates and by Rob Lees, a partner at Melbourne law firm Slater and Gordon, which is handling a class action on behalf of more than 700 Henry Kaye clients seeking the return of millions of dollars paid to Kaye's company from funds borrowed from AFD.

"We want to annul all of those (contracts) and get a refund for all the victims," Mr Lees said.

He said AFD had been estimated to have loaned about $60 million for Kaye seminars.

Mr Lees said Slater and Gordon would consider extending its statement of claim to include yesterday's decision that the AFD scheme was against consumer law.

"This is a very significant decision, which will hurt AFD," he said.

"It has provided us with additional ammunition in our claim against the company. "We will be looking to include a claim in our class action that AFD have illegally charged interest on all of these contracts, which is essentially what the VCAT decision says."

Paul Gillett, a solicitor with the Consumer Credit Legal Service, Victoria, and consumer property advocates Neil Jenman and Denise Brailey, who helped initiate much of the legal action against Kaye, welcomed the VCAT ruling as significant for consumers and Kaye victims.